IRA Distribution

[Dave T]

T/P's husband died in early 2014.  Sometime later she gets $ 62 K distribution form his IRA.  She then ( within allotted time ) rolls into her own IRA.

 

The 1099 form Met Life has the $ 62 K  as fully taxable and distribution code 4.  No Federal w/h

 

I don't believe this should be taxable to her since she rolled it but am wondering how the IRS would know since it wasn't a direct transfer ( Code G ) but rather a cash receipt and redeposit.

 

Do I change 1099 to show as non-taxable?

 

Thanks

 

Dave T

 

 

 

 

[Cathy]

Dave,

 

Leave the 1099-R worksheet as is, then enter the amount rolled over under the taxable amount (on the next line).  Were there any taxes withheld?  If not, it should be smooth sailing.  The receiving trustee should issue directly to IRS, and a copy to your client, Form 5498 (IRA Contribution Information) which should satisfy IRS that the amount was indeed, rolled-over.  The worst thing that could happen is that IRS writes and asks for confirmation directly from your client if the paper work should go astray.  Just make sure he has in his possession the statement from the new trustee showing the rollover and tell him to be sure to hang on to it "just in case".

 

Take care,

Cathy

[Cathy]

Dave, 

 

One more thing....enter a G in Box 7 rather than the 4 that the 1099-R had.  That is to let the program know to handle the distribution as a rollover.

[Lion EA]

I have a similar issue in a different software.  I'm reluctant to change the Form 1099-R as issued, change the code from 1 to G for my client.  Doesn't the IRS matching system compare the information?  Right now, I used an over-ride directly on the form; but I hate to over-ride, also.  (Good old HRB had an easy solution.  They had a drop-down menu off box 2 asking how much was rolled over.  Sometimes I miss their program.)

[Cathy]

I know exactly what you are saying Lion. I felt the same way when I first learned how to handle a rollover in ATX. However, especially when it's a rollover handled by the taxpayer, there's no other way to enter it. I had one such rollover questioned years ago and once the taxpayer presented proof of the timely rollover, everything with IRS was lovely. IRS was merely checking to make sure the rollover was made in a timely fashion. They never once questioned the way it appeared on the return or a worksheet either fir that matter.

I guess you have to look at it another way also. When the manager of the local HRB office told me that unless her program automatically entered the depletion allowance on royalty income, there would be no depletion allowance deducted on a return as she was not going to enter it herself! And further, she was told to NEVER enter anything on her own! Guess that's what separates the men from the boys and the women from the girls!

[Lion EA]

I'm warning my client not to be alarmed at an IRS letter.  She did put the money back in about 30 days into the same IRA and has the E-Trade transactions printed out.  Just not happy that there's no direct way to report an indirect rollover, a way that the return/worksheets show the trail.  By the way, is "rollover" supposed to print in the margin?  I wonder how I can make that happen.  I am not charging enough for this return.

 

I worked with one woman at HRB who did everything by hand in pencil first and then overwrote everything in the program.  I like having a program that can provide diagnostics and help me out when I'm sleep-deprived.  I lose that when I override, but don't see a way around that for an indirect rollover.

[Randall]

I have a similar situation.  Surviving spouse received 1099R and I think there should have been two 1099Rs.  There was a distribution with tax withheld and there was a rollover into spouse IRA.  I have the statements showing the amounts.  It was with a broker and the IRA and non-retirement account was with the same broker.  A direct transfer.   Sheesh.  They just took a short cut in issuing one 1099R.   I warned client of an IRS letter.

[joanmcq]

Don't change the code. There's a spot in ATX under the 1099 to enter any amounts that are rolled over. She's still likely to get a matching notice, but changing the box 7 code is a sure way of getting one.

[Jack from Ohio]

Expect the CP2000.  Form 5498 does not include dates of deposit nor the source of the funds.  Get all the information together. 

 

1. Copy of the check when she received the payment.  This will show the date of withdrawal.
2. Statement showing the date and amount of the deposit into the new account.
3. Statement showing that the new account is a qualified retirement account.

 

Then when the CP2000 shows up, you will have all you need to respond.  In this scenario, you cannot prevent the CP2000.